Sounds like I have a bit of scoop here... look at me with the inside track! I have seen a preliminary copy of the McKinsey report, and to say I'm excited is a HUGE understatement. We all knew that the McKinsey group was facing a daunting task: Lower handle, no central governing body, and lack of interest from even our most hard core players. The report, which I imagine could be released, sooner than later, has tackled every issue that has plagued racing in recent times. And with the way the report is written it appears the alphabet soup of racing has already begun to make changes. I was able to have short peek at the preliminary report, including the pre-draft press releases, and was allowed to see some next steps from McKinsey.
A strong national body is good for racing, as it emphasizes legitimacy and McKinsey recognizes this. They note there is currently no reason for cooperation and prior efforts have never had a strong reason to legitimize the cooperation. The reasons that prior joint ventures were put together were for appearance or convenience, and that while smaller coalitions have worked, the life spans are as short as the crisis they deal with. They also note the spectre of forced legislative cooperation; though it is a long way off is a very serious threat.
The next section is spent on legitimizing a national body. Legitimacy will come from large business decisions that will have a beneficial impact on all parties made by a conglomerate of the tracks and owners. Lots of big words like synergy and fruition, but it boils down to horse racing needs a money-making idea where everyone has a stake in success and growing the business. And, McKinsey has one. Not only does McKinsey have one this section reads like it's in place and just needs a signoff from a few tracks. There is a press release ready to go, and I'm going to do my best to paraphrase (I will use quotes as it's my best memory). I wonder if they leaked this to put some pressure on some slow to agree.
In the report it appears that the Jockey Club has tentative agreements from most of the major tracks and groups to package the graded stakes to TV, and VERSUS will be the buyer. VERSUS network is an up and comer on the sports dial as they've shown commitment to hockey, have had a great relationship with the WEC (now UFC), and they did a great job showing the Derby undercard last week. I think fans are comfortable with VERSUS and the industry seems to be even more so. VERSUS has signed up to show live and taped horse racing 19 weeks next year: the week after the Belmont to the week before the Breeders' Cup (BC). The show will be on Saturday afternoons from 4:30 to 6:30 (though I'm not sure how they'll handle playoff hockey). The hope is to catch as many graded stakes as possible in that "live" window, show replays from missed events from the week prior, and include in-depth analysis on how every race points toward the Breeders' Cup. VERSUS has signed up to PAY for these TV rights. This is a first for horse racing, as most of the television time horse racing is allotted is paid for by the industry. VERSUS sees a way to monetize this programming thanks to some new things adopted by The Jockey Club we'll get into later. However, the first thing making this possible is the Breeders' Cup changing Win and You're In (WAYI).
Regularly changed; the Breeders' Cup is again changing their WAYI format. VERSUS needs a story line week in and week out and the Breeders' Cup is going to provide that. From the Belmont to Breeders' Cup weekend every US based graded stakes race will carry a point value and that value will be split amongst the top three finishers. The foreign WAYI’s will still be valid; as a win in one race and you're in with costs covered, but now only the top three point earners in every BC category will get that paid treatment in the US. Furthermore, gate choice will now be put into a lottery. The horses that have compiled the most points over the season will be more likely to have their named pulled sooner for gate choice (think NBA lottery format). Matthew Lutz, interim CEO comments, "The Breeders' Cup is about competition, and with this change we not only hope to see more competition in the event itself, but to also show what great competition occurs throughout the year. We also wanted to incorporate some things that work in other sports, and the lottery for gate choice we think will be a hit for every type of race fan. We certainly don't want our best stars chances hurt by being handicapped before the race even starts."
Everyone needs legitimacy, and to get that the Breeders' Cup will rely on TOBA and their American Graded Stakes committee to create the point values of all the races. Dave Metzger from TOBA is quoted as saying "Grade I, II, and III are still going to be the focal point of owners and breeders, but our fans need something more tangible and specific, and we're more than happy that the Breeders' Cup is relying on our methods to put a fine point on the value of all these races. We're happy to do this for the fans who will gain new traction in the sport, and our owners and breeders who will see greater interest in every race."
The smaller tracks are obviously very excited about the possibility of getting national exposure. I expect to see racing directors look at moving some races around both in times and dates to help ensure their graded stake is on the show. With nothing on television set in stone small tracks can position themselves with a better chance to make it on the show by not duplicating another race in the same division. There are only so many turf route races for older horses that need to be held in early August. The bigger tracks were supposedly harder to corral but The Jockey Club has set up a structure for rewarding everyone involved in this change, and the NTRA is very involved in part of this new structure.
Alex Waldrop and the NTRA are central figures in all of these discussions. The NTRA is already set up as a not-for-profit and that status and their involvement in advertising and safety will be crucial in getting the new idea off the ground. The only bad news for the NTRA is that they will fall under the Jockey Club as a subsidary. Alex Waldrop remains and remarks, "The NTRA wants to be at the forefront of the industry returning to the prominence it once held. The only way we can move forward together is if we have a shared revenue source, and the NTRA hopes to help create this." The NTRA is poised to become the broker for advertising. "Horse racing is going to pursue advertising. NASCAR we are not, but there are ways that advertisers and horse racing can help each other. The NTRA has shown continued success in the area of corporate sponsorship, and we will work with those at the Breeders' Cup, to tackle this problem together." The idea is that corporate sponsors will place their advertising on the saddle cloths of the horses running in the races that get shown on VERSUS. The advertising itself will be broken down by owners. For example, all of Ramsey horses will carry “Advertiser X” while all the Stonestreet horses will carry “Advertiser Y.” That isn't to say that advertisers X and Y won't appear on other owned horses. The owners of smaller stables will get the most help from the NTRA to give them the best chance of gaining a sponsorship for at least one race.
The Jockey Club working with the NTRA was the starting point for all this. The initial hurdle was packaging the graded stakes to VERSUS. Ogden Mills Phipps has some pretty forward thinking goals, "The new revenue of this sport must insure that all parties are brought to the table to negotiate in the industry's best interests. This advertising will be on a horse owned by an owner, ridden by a jockey, raced at a track, and shown on television. Everyone one of those represent investors in our new business model and everything will be done to insure a fair revenue split." He went on to say, "This change is only the tip of a much larger, much more necessary change in racing. However, the ball must start rolling, and this is where it will begin." Mr. Phipps goes on to mention that he hoped such a small change to the sport will have far reaching affects. "Our long term goal is to change the way every track does business. Our current model is not sufficient. There are hard decisions to be made, but let's get people agreeing on this before tougher issues are tackled."
The Jockey Club, through the NTRA, wishes to purchase the exclusive signals of most every track in the country, and form a business around selling and buying them back to tracks. The Jockey Club/NTRA hopes to create two benefits with the above model: First, there will be a cut down on contracts, and there will be an industry-wide standard created by the industry for wagering and negotiating.
Second, the industry will be able to deal with offshore wagering, rebates, and defend against the threat of further exchange wagering as a group. The "clearing house" will instantly create a congress for our industry. McKinsey sees carrots and sticks created to get tracks working on the same goals to either increase what they can get for their signal or reduce what they pay.
In the conclusion of the report it's noted that by centralizing the contracts at The Jockey Club there will be an efficiency created and a chance to centralize power in the most democratic way. With the tracks owning this not-for-profit insuring transparency and an even playing field for negotiations. There is some anti-trust worries, but Congressional approval would come swiftly with concessions made for on-track safety for horses and jockey, retirement facilities for thoroughbreds, and a national standard for drug testing and their use. Not an easy task, but not hard either.
McKinsey concludes with where a central governing body can take us. They point to issues of takeout: Where the congress can lower rates together rather than one track trying something short term. Rebates could be created for players across a national scale. ADW's comparative advantage with overhead costs would be challenged.
The only shortcoming I see is that the breeders are left a bit out. However, this report mostly focused on the racing side. Hey, with a good product in racing breeding should take care of itself.
So, what do you all think of the plan? Will pressure be created for tracks to sign up for this because of the good deal? |
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